Financial Transactions Tax: re-balancing the debate
20.02.2012 Article by the European Commissioner for Taxation, Customs, Anti-fraud and Audit, Algirdas Šemeta, on the Financial Transactions Tax, as published in the newspaper "Alithia" on 20 February 2012.
A European financial transactions tax is moving ever closer to becoming a reality. There is a steady convergence on many aspects of the Commission's proposal, and constructive input into resolving the sticking points. In parallel, a huge popular momentum has built up around the FTT. Citizens understand its potential benefits: a fairer distribution of the tax burden, greater stability in the financial sector, and considerable revenues.
However, perhaps unsurprisingly, the closer we get to delivering on an FTT, the wilder its opponents' rhetoric has become. The Commission's own figures have been misused and misrepresented, to create doomsday scenarios around the impact on growth, jobs and competitiveness. Stirring up unfounded fears is an easy game, but not a responsible one. Without a doubt, an open and frank debate on the FTT is essential. But this debate must be based on fact and reason, and reflect the realities of the proposal that is on the table.
On that basis, it is time to put the record straight on some of the myths surrounding our proposal for a financial transactions tax.
First, when it comes to the economic impact, the FTT will not damage European growth and competitiveness. Nor will it lead to job losses. All taxes, when looked at in isolation, carry an economic cost. But the cost of the FTT is small, and it is legitimate compared to the huge volume of support that the financial sector has received in recent years. Moreover, the positive effects from the use of revenues from the FTT must be factored in. If the projected €57 billion per year is put towards consolidating national budgets, reducing other taxes or investing in public services and infrastructure, I would go so far as to suggest that the FTT could be positive for growth and employment in Europe.
Second, we can disregard arguments that suggest that ordinary citizens and businesses will end up bearing the brunt of the tax. For a start, the day-to-day financial activities of citizens and businesses are not included in the scope of the tax. Of the transactions that are covered, 85% take place purely between financial institutions. Should the financial sector, which is the target of the tax, pass on some of the costs to its clients, the outcome would still not be disproportionate. Any citizen buying, for example, €10 000 in shares can surely afford a €10 tax on the transaction.
Finally, those who allege that the FTT will lead to a mass exodus of financial markets from Europe, have either not read the Commission's proposal, or failed to understand it. Strong mitigating measures are included in the proposal, precisely to prevent that from happening: the low rate, wide base and, crucially, the "residence principle". If financial operators want to avoid the FTT, they would have to abandon their European clients altogether – an unlikely response to such a small tax.
Those railing against the FTT should also consider what the alternatives are. Many Member States are reaching the limit in how far they can reasonably go in imposing more austerity measures. Would this small tax on the financial sector really be worse for growth and competitiveness than further hikes in income taxes, or deeper cuts in public spending? While ordinary citizens face higher taxes on their salaries, food and fuel, as well as cut-backs in basic public services, is it unreasonable to expect the financial sector to pay its share?
The FTT offers an opportunity for important new revenues, and a way of rebalancing the tax burden so that those who can afford to pay, do.